Still Buy IBM Corp.

Also: Analysts' opinions on Williams Cos., Merck and Coca-Cola

International Business Machines (IBM ): Maintains 5 STARS (buy)

Analyst: Megan Graham Hackett

The computer maker announced its board elected President and COO Sam Palmisano as CEO to succeed Lou Gerstner, in a widely anticipated move. S&P believes the appointment of Mr. Palmisano as CEO is a sound move: He has been well-regarded by the Street, and is largely credited with building IBM's Services group into the leadership position it currently enjoys. He has been rotated into various executive positions, with exposure to virtually all of IBM's business units as part of the process to groom him for the CEO spot. Gerstner will hold the Chairman spot through 2002.

Williams Companies (WMB ): Downgrades to hold from accumulate

Analyst: James Kartsonas

Shares are down 23% as the company delayed the release of 2001 results, pending assessment of spinoff Williams Communications' contingent obligations. The company expects 2001 EPS from continuing operations of $2.35 vs. $2.33, $0.05 below S&P's estimate. This includes a $91 million charge for Enron exposure. With uncertainty on how Williams will handle Williams Communications' $1.4 billion debt and possible financial impact, but with shares trading at a price-earnings multiple of 7 -- their lowest multiple in a decade -- and on 15% higher 2002 EPS, S&P says hold Williams for now.

Tyco International (TYC ): Keeping 5 STARS (buy)

Analyst: Michael Jaffe Tyco shares have been slammed again as the Enron debacle is keeping investors away from firms with complex accounting. Today's action might stem from Tyco's disclosure that it paid $20 million to an outside director for help in brokering its June 2001 purchase of CIT. This seems just like late 1999, when a newsletter spawned rumors of irregularities and led to an SEC inquiry. However, the shares went back to trading on Tyco's solid business fundamentals after the SEC validated the company's practices. Given the good outlook for its security, healthcare and fire protection businesses, S&P thinks the share downturn gives investors an excellent entry point.

Merck (MRK ): Still 3 STARS (hold)

Analyst: Herman Saftlas The company announced plans to spin off its Medco pharmacy benefits management unit. The company plans an IPO of part of Medco by mid-year, with the balance of the shares to be distributed to Merck shareholders within 12 months. Medco accounted for 46% of sales in 2001, but only 10% of EPS (plus an extra boost for Merck drugs). Merck's forecast for 2002 EPS of $3.14 (flat with 2001) remains unchanged. The estimate includes $0.06 from the FASB 142 rule. The Medco divestiture makes Merck a pure play drug company and opens up new merger possibilities. But it is still scrambling to enhance its relatively thin R&D pipeline. The shares trade at a discount to the drug group p-e multiple, but at a premium on a p-e-to-growth basis.

Coca-Cola Co. (KO ): Reiterate 4 STARS (accumulate)

Analyst: Richard Joy

The soft-drink giant posted fourth-quarter EPS of $0.37 vs. $0.42 before special items, in line with expectations. Full year EPS were $1.60 vs. $1.48. Worldwide unit case volume was up 4%. North American volume was up 2%, Europe up 3%. Emerging markets saw strong growth, with Asia and Africa up 11%. S&P sees 5-6% worldwide volume growth in 2002. Full-year free cash flow exceeded $3 billion. S&P sees strong cash flow growth in 2002 supporting acquisitions and share repurchases. S&P is keeping its 2002 EPS estimate at $1.79. The shares are attractive at 25 times the 2002 estimate, given improving earnings visibility and cash flow growth.

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